Saheh believes this divergence sets up an uneven recovery for the coming year as those lagging geographies will see a outsized comeback, reversing regional dynamics of the past nine months.
We’re talking more about comparable recovery and, in particular, for those publicly traded companies that are going to bounce off the COVID-19 bottom with force. Saleh points to California-heavy Kura Sushi USA as one target. Also, Papa John’s, he said, will benefit from the regional dynamic as the concept had less exposure to the West Coast and Northeast, meaning it didn’t benefit as much in 2020 from lockdowns and reduced mobility. “This should improve the sales outlook as the year progresses and lessen the difficult sales comparisons many investors are worrying about,” Saleh said.
Again, maybe more so than any year on record, understanding a restaurant chain’s outlook in 2021 can’t just be restricted to the brand’s strength. Understanding the geography and what setbacks were in place in 2020 is going to factor in, good and bad, on a year-over-year basis.
Saleh said food-away-from-home sales should recover, too, thanks to education and hospitality as consumers begin to return to more normalized routines.
A chance for refinement
Throughout COVID-19, one relatively stable trend was the optimization of restaurant menus. While some chains used this as a potential differentiator and didn’t cut back, most did. They reduced items outside their core in an effort to improve efficiency and speed of service, with a nod to off-premises and smaller staffs. Looking ahead to 2021, Saleh said, operators have an opportunity to separate from the field with menu innovation, pivoting away from each other for the first time in decades—rather than in the same direction.
In other terms, COVID-19 might have struck the final blow for the “all things to all people,” mindset that sprung up in the 2000s as brands of all ilk tried to serve a mysterious and fast-approaching millennial generation.
Saleh expects Wendy’s to leverage its salad platform to drive sales, while McDonald’s completely abandoned the offering. The exception, however, will likely be chicken, with the chicken sandwich wars escalating in the early part of 2021 when McDonald’s launches its new Crispy Chicken option. Even with virtual chains flooding the fray by the handful, chicken has shown no real indication of eclipsing peak demand during COVID-19. Not only does the product fit off-premises and in-store targets, but it tends to be operationally simple (customers don’t get too crazy with builds and add-ons) and generally carries a healthier perception than burgers.
Where Popeyes fits in this next act and which marketing campaign emerges is hard to say, but you can’t deny the chain started a movement that will linger into 2021.
More to benefit
Another common theme, and one often tied to menu optimization, is cost cutting. Saleh said a lasting benefit of COVID-19 will be greater efficiency and higher-operating margins as restaurants reduce expenses and learn to operate with a leaner infrastructure.
Saleh predicted restaurant and food distribution operators will reach pre-COVID-19 profit levels with 90–95 percent of past sales given respective simplification and cost-saving efforts. Additionally, higher digital sales will be another enduring impact of coronavirus as ordering practices remain sticky and customers become accustomed to convenience.
Once a customer orders-ahead for pickup, with the convenience and customization possibilities, why would they go back? More likely, digital adoption of the past year will only solidify different restaurant occasions. Takeout/curbside, for instance, will serve a much more defined journey. What this could mean, especially for full-service restaurants, is an urgency with key pre-pandemic challenges—the need to separate and differentiate in-store dining so that it justifies the speed/price trade-off guests can have with fast food and delivery. Experience and service were always hallmarks of the full-service experience. Now, they’re survival terms.
Broadly, higher digital sales should provide greater operating efficiency and some welcome offsets to rising wages for restaurants, namely quick-service brands. Saleh said fast casuals like Chipotle, Shake Shack, and Starbucks will see more of a lift in 2021 than traditional quick service or casual-dining concepts. Like most things, the culprit is whitespace. You’ve seen it already with Chipotle and its digital ascension of the past two years. The opportunity was more incremental because of how much room there was to gain. Just look at the “Chipotlane” drive thru. Recent units are generating sales as much as 25 percent higher (10 percent is the average for comped units). Those restaurants welcome 60 percent of sales through digital. But vividly, the biggest change is that digital mixes two-thirds order-ahead with Chipotlanes, thus boosting profitability. Typically, the breakdown is nearly even for Chipotle between delivery and takeout, with delivery splitting 65 percent marketplace and 35 percent in-app.
In the case of Starbucks and Chipotle in particular, digital and accessibility opened the door to high-tier growth, with Starbucks saying last week it expects to open 22,000 locations in the next decade. Chipotle thinks it can get to 6,000 total.